Double Entry Accounting Workbook

1 Double Entry Accounting WorkbookErin LawlorDouble Entry Accounting WorkbookTable of 2 Financial Statement Introduction .. 3 Financial Transactions .. 4 Debits and Credits .. 4 Journal 10 Chart of 16 General 18 Trial 19 Accounting 25 Order of 28 Account 29 Financial Statements .. 30 Income Statements .. 31 Break-Even 33 Balance Sheet .. 34*Bonus MaterialClosing Journal Entry .. 38 General Ledger Examples .. 40 Depreciation .. 44 Cash Flow Statement .. 46 Subledgers .. 49 Accounts Payable .. 49 Accounts Receivable.

2 52 Bank Reconciliation .. 55*About me: I have been working in Accounting for 22 years, I have a BS degree in Accounting and have done every Accounting job I can think of from Accounts Payable to Controller of a Home Health Care Agency, Home Builder and a Commercial Construction Company. Currently I provide Accounting and Accounting Software support as a Consultant in Utah.*Disclaimer: The information in this book is written from my experience, research and training. I do not write with authority from any Accounting Standards organization 2009 -2010 all rights reserved Erin LawlorDouble Entry Accounting Workbook Introduction:The subject of this Workbook is the Double Entry Accounting System.

3 This system has been in use since at least the 12th century and it continues to be the most effective financial Accounting system today. Double Entry Accounting is surprisingly simple and is built around only a very few concepts, a balance between what a business has, where the business got what it has and how to organize the answers to those questions. With those few concepts, the Double Entry System successfully provides financial Accounting for any size of business in any industry. This Workbook is focused on the things you need to know before you use Accounting software and before you read financial statements.

4 It starts with the central system of Accounting with the least amount of detail possible so that you can quickly understand the concepts. The main elements of the central system are Debits, Credits, Journal Entries, the General Ledger and Financial Statements. The Financial Statements and reports we cover are the Trial Balance, Income Statement and Balance Accounting tasks and accessing Accounting data has been made much more efficient by software which is able to take advantage of the computer's ability to organize and compute large volumes of data.

5 But despite claims made by some software companies, software can't do it all for you. Just like you need to understand your industry, you need to understand the basics of Accounting in order to understand its reports and is about the destination, we gather the data so we can produce reports that tell us about our companies. It is important to learn how Accounting works and how your Accounting software works but move away from the details of both as quickly as possible. Use your software and its reports to take a drill down approach focusing first on summaries and then on details.

6 Accounting reports are meant to keep you on track and to let you know when you need to make course corrections. Before we get into the process of gathering and organizing data, let's take a look at two financial statements the Balance Sheet and Income Statement which we will create in this Workbook . Examples of the Balance Sheet and Income Statement are on the next Statements:The Balance Sheet is like the X on a map that says You are Here . It tells you what your business owns, what it owes and what it is worth (book value). Items listed on the Balance Sheet have lasting value and they remain on the balance sheet until they are disposed of.

7 Items that do not have lasting value are listed on the Income Income Statement calculates Net Income which is Sales Revenue - Expenses. The Income Statement gives a detailed explanation of how much money you earned and what your costs were. Items listed on the Income Statement do not have lasting value, they are used up within the current business year. Income Statement balances do not carry forward the way Balance Sheet balances do, they are reset and started at zero again at the beginning of each business year. The Income Statement also makes a distinction between the Direct Cost of products and services and the Administrative Cost of running a business.

8 Revenue Direct Costs = Gross Margin (Profit). Gross Margin Administrative Costs (Expenses) = Net StatementsFormat and ContentsThis look at the financial statements we will create is meant to give you a visual representation of where we're going as we progress through the process of gathering and organizing financial data. Let's dig into the gathering and organizing processes now starting with Section 1, Financial Sheet FormatWhat we haveAssetsWhat the Business Owns==LiabilitiesWhat the Business Owes and must repay+EquityWhat the Business is Worth(What the Business Owners have investedplus Business Net Income)

9 Total Assets must equal Total Liabilities plus EquityWhere it came fromBalance SheetDecember 2010 AssetsCurrent AssetsChecking Account$ AssetsOffice Equipment$ Hardware$ Furniture$ Total Fixed Assets$2, Total Assets$2, and EquityCurrent LiabilitiesAccounts Payable$ Total Liabilities$ ' Equity$2, Income (Loss)$( ) Total Equity$1, Liabilities and Equity$2, StatementDecember 31, 2010 Advertising Sales$ Hosting$ Margin$ ExpensesRepairs & Maintenance$ $ $ Supplies$ $ $ Service$ Service$ Charges$ Card Interest$ Operating Expenses$1, Income(Loss)$( )Income Statement Format+RevenueTotal Sales Amount-Cost of Goods SoldWhat it cost to purchase and/or manufacture productsand/or provide services sold =Gross MarginAmount of Revenue leftafter direct costs to cover operating expenses-ExpensesOperating Costs Consumed (No lasting Value)

10 =Net Income(Loss)Profit(Loss) from salesafter all consumable the increase ordecrease, for the current year,in what the Business is worthSection 1: Financial TransactionsPart 1: Learn to identify transaction elementsThe main objective of Double Entry Accounting is to create a balanced financial picture, that is, we should not only know how money was used, we should also know where it came from. We achieve this balance in information through the way we record and organize financial transactions so it is very important to understand the elements of a financial transactions are exchanges of things of value.